Prognosticators have been calling for a 30% to 50% correction since last summer, and the recent bull run has added fuel to their fire. And that was before Donald Trump became president-elect or the Federal Reserve raised interest rates for the first time in almost a decade.
We wouldn't go so far as to say a correction is imminent, but we do urge taking precautions by investing in dividend-paying stocks. They're a smart bet for income in a low-yield, risky world.
Even in the case of a correction, these stocks will generate a reliable income stream and present an opportunity to buy more shares at a discount to generate more income. These three stocks offer dividend yields of more than 10%.
1. Invesco Mortgage Capital (IVR) invests primarily in residential mortgage-backed securities backed by government-sponsored entities like Fannie Mae and Freddie Mac. In addition to mortgage-backed securities the company also manages a diverse portfolio of mortgage loans and other real-estate investments.
Invesco's shares rose 22% this year to about $15, yet the company still has a dividend yield of 10.6%. It's a very dependable high-yielding stock.
2. Summit Midstream Partners (SMLP) operates primarily in the shale oil market in North America. The company also provides processing infrastructure for natural gas producers and has approximately 2,700 miles of pipelines under its management.
Summit's stock is up 22% this year to about $23, and it has a dividend yield of 10%, which should make income investors happy. The dividend's growth rate has slowed down in the last two years, but management has made no reference to a dividend cut and has said that it will continue to be able to pay its current dividend.
3. Two Harbors Investment (TWO) is a hybrid mortgage REIT, meaning that it invests in both commercial and residential mortgage-backs securities and loans. Its share price is up 10% so far this year to almost $9. The company declared its most recent quarterly dividend of 23 cents on Sept. 15 for an annual dividend yield of 10.3%.
Shares of Two Harbors trade at a bargain. The company reported an accounting book value of $9.83 per share in its second-quarter earnings release. This means that the company's stock currently trades at a roughly 8% discount to its intrinsic value based on its financial statements.
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